MARKET-ALERT Rumblings Up, Down, and Around Wall Street Issue #441 dated July 30, 2017, with Ray Dirks of Ray Dirks Research and his team of securities analysts and money managers, accompanied by the internationally-followed Web Sites www.CorporateProfile.com and www.CPreports.com, where Fashion meets Finance, and where Stocks meet Blonds. And www.raydirks.com

Well… well… well… ‘Twas another exciting week for the stock market in the U.S. last week as the Dow Jones Industrial Average set another all-time high and some of Rumblings Favorite Stocks for 2017 went up nicely, as we predicted.

As President Donald Trump completed his first six months in office, his administration suffered several setbacks, which resulted in Trump’s changing some of his senior officials late last week, but this political turmoil did not overwhelm the bull market in common stocks, as many expertsÂ predicted it would.

Let’s quote from The TraderÂ column in Barron’s, The Dow Jones Business and Financial Weekly, where the headline reads: Boeing, Caterpillar lift Dow to Record High,Â The column begins: Newton’s third law of physics states that for every action there is a reaction Ã¢â‚¬â€œ but sometimes that can lead to no action at all.Â

Take the so-called FANG stocks. Three of the four reported earnings last week, with Facebook (FB) gaining 4.9% last week, Amazon.com (AMZN) slipping 0.6%, and Google parent Alphabet (GOOGL) dropping 3.6%. In the end, they netted out to a 0.2% decline to 6,375 for the Nasdaq Composite, and virtually no change for the Standard & Poors 500 index, which closed the week up 0.4 points at 2,472. The Dow Jones Industrial Average was the exception that proved the rule.Â With none of the FANGs among its 30 component stocks, the blue-chip index benchmark rode huge gains in Boeing (BA) and Caterpillar (CAT) to a 250 point gain to 21,830, an all-time high.

Still, it is hard to ignore just how on edge the market seems to be, as every drop, no matter how small, is analyzed for signs that it’s the one that marks the end of the long bull market. And every gain is an opportunity for handwringing. The muted CBOE Volatility Index, or VIX, which traded as ridiculously low as 8.8 last week, has only added to the consternation, prompting talk that a tumble is looming.

There’s a sense that many things are coming together that make you feel like you’re headed for a correction.Â Says Jim Paulsen, chief investment strategist at the Leuthold Group. There’s so much of that right now, that it almost would surprise me if it happens.Â

And for good reason. The S&P 600 has suffered two 15% drops since the bull market got going in earnest, says Tony Dwyer, chief market strategist at Canaccord Genuity. The first occurred in 2011, when the European Central Bank raised interest rates as it wrestled with its own financial crisis and the global economy struggled to grow again. The second occurred at the end of 2015 and into 2016, when China’s currency depreciation and the collapse in oil prices caused markets to tumble. Dwyer sees few similarities today. The global economy continues to recover, and U.S. gross domestic product grew at a 2.6% clip during the second quarter; earnings are growing at a 10%-plus clip; and a weak dollar should provide a boost for U.S. multinationals and commodity prices. This will end badly at some point, Dwyer says. But the underpinnings for a major drop are just not there right now.

Which doesn’t mean there won’t be sudden bouts of volatility. Two events in particular have the potential to shake things up. On Friday, we’ll get the June payroll data, which could provide evidence of whether the Federal Reserve, which left interest rates unchanged last week, is ahead of or behind the curve. And then there’s Apple (APPL), which is scheduled to release earnings on Tuesday, and this time the Dow won’t be above the fray. A surprise from either could upend stocks.

Just don’t bet on it. The market appears bulletproof, says Ian Winer, head of equities at Wedbush Securities.

Enjoy it while it lasts, says The Trader column.

Another fascinating article in Barron’s is titled: Citigroup Is Back, and we’re quoting from this article because Rumblings is adding Citigroup (C} at its current price of $67.43 to its list of Favorite Stocks for 2017.

After years of restructuring and repositioning, Citigroup last week laid out some ambitious financial targets at its first investors day since 2008, and Wall Street liked what it heard.

Citigroup shares (C) finished the week up 2%, at $67.43, approaching their highest level since the financial crisis, when the then-troubled bank raised capital and massively diluted its shares. There could be more upside because Citi offers the combination of a low valuation and what could be the highest earnings growth rate among its peers in the years to come.

The bank is targeting $9.00 a share in 2020 earnings, up from a consensus estimate of $5.16 this year, a 20% compound annual growth rate. The bank suggested its stock could hit $100 in this scenario, 48% above the current level

In the wake of a series of stress tests, the bank was recently allowed by the Federal Reserve to double its dividend payout, lifting the yield near 2%. Citi may also repurchase 8% of its shares in the coming year. It has clearance to return about $19 billion in capital to shareholders in the next 12 months, and it’s hoping to return $20 billion -plus in each of the following two years.

Considering its lofty financial goals and global footprint, Citigroup looks inexpensive at 11.4 times estimated 2018 earnings of $5.92 a share. The stock trades at its tangible book value of $67 a share, the lowest valuation among its rivals. Industry leader JPMorgan Chase (JPM) fetches almost 1.8 times tangible book.

Citigroup’s stock, up 13% in 2017, has been the best performer in the group this year, but there could be another leg to the story in the next few years if the bank can close the profitability gap relative to best-in-class peers like JPMorgan, says John McDonald, a banking analyst at Bernstein, who has an Outperform rating and a $75 price target. He notes that Citi is aiming to lift its return on common equity to 11% in 2020 from about 8%. JPMorgan is already at 14%.

McDonald says investors want to see if Citi can generate consistent growth in revenue and operating profit. There is no Street consensus estimate for 2020, but the 2019 projection is $6.90 a share. That’s below the $7.50 or so that is consistent with Citi’s financial target.

Citigroup’s executives, led by CEO Michael Corbat, were eager to tell an upbeat story after a period of what Corbat called tough decisions in terms of our capital, our balance sheet, and business model. The bank’s returns have trailed those of its peers Bank of America (BAC). JPMorgan, Goldman, Sachs Group (GS), Morgan Stanley (MS), and Wells Fargo (WFC) and earnings per share last year of $4.72 a share were little changed since 2013.

The repositioning is done, and we’re poised to deliver attractive and sustainable returns. We have an unparalleled global presence and industry-leading franchises supported by robust capital and liquidity, Citigroup Chief Financial Officer John Gerspach tells Barron’s. The bank operates two divisions: a worldwide consumer bank and an international client group that includes a large bond- and equity-trading business.

The $9-a-share earnings target for 2020, while achievable, might be a stretch. Citigroup is banking on half the earnings gain coming from a huge share-repurchase program, 40% from improved business performance, and 10% from the impact of higher interest rates. The bank is seeking to generate 3% overall annual revenue growth, including 5% per year in the consumer bank. These revenue assumptions are in line with recent results.

KBW analyst Brian Kleinhanzl wrote that Citi will need 10% compound growth in annual revenue in its U.S. retail bank and its leading Mexican bank, Citibanamex, to hit these targets. Citi is also assuming a robust global economy and benign credit costs.

If the bank gets half of its projected business improvement, the stock could do well, given the earnings growth from other factors, one investor tells Barron’s. Gerspach says financial targets aren’t dependent on heroic performance from any one business, geography, or product. Citi’s strengths include the largest international reach among its peers, with a sizable presence in the developing world. Citigroup is strong in Asia, where it has consumer operations in 12 countries, including Hong Kong and Singapore.

The bank gets nearly half of its revenue from outside the U.S., the highest percentage in its group. Leveraging off its worldwide presence, Citigroup operates the largest proprietary global payments system; it’s also the No. 1 global credit-card issuer.

Since 2012, to streamline its business and lift returns, Citi has cut the number of consumer markets in which it operates to 19 from 41, shrank its institutional client base by more than half, and reduced head count by 15%.

We aren’t looking to drive the value of the stock up today or yesterday. We wanted to offer investors a clear set of metrics going forward that will drive the value of the stock, Gerspach tells Barron’s. If Citigroup even comes close to meeting its goals, its profit should be a lot higher by 2020, and the stock could reach $100.

Rumblings suggests to its readers/investors that they do their due diligence, consult with their investment advisers, and then consider selling some of their fixed income holdings, and reinvest the proceeds in Rumblings list of Favorite Stocks for 2017, which includes Apple (APPL), Aflac (AFL) and Citigroup (C), among others.

Rumblings also suggests that readers/investors place no more than 1% of their portfolios in the securities of any one company. It pays to diversify!

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